Morgan Stanley Chairman and CEO James Gorman does not expect his company's disappointing fourth-quarter 2018 performance to become the new normal.
Morgan Stanley produced a return on average common equity of 7.7% during the quarter, compared with its medium-term ROE target range of 10% to 13%. For the full year, the company hit its target, with an 11.8% ROE. Gorman said market volatility made the operating environment challenging during the fourth quarter, but he has seen signs of change.
"While it's early days, the first quarter has started on a similar path to the start of the first quarter of 2018," he said during a Jan. 17 earnings conference call. Morgan Stanley produced an ROE of 14.9% in the first quarter of 2018.
Still, Gorman noted that the company did not reach some expectations in the fourth quarter, with the biggest gap coming in fixed-income sales and trading. In that business, Morgan Stanley produced $564 million in revenue during the period, compared with its goal of generating $1 billion on average in quarterly fixed-income trading revenue.
"We do not expect that to be standard operating procedure," Gorman said.
Increased volatility also negatively impacted issuance activity in the fourth quarter, Gorman said, which reduced institutional securities revenue results for investment banking underwriting, down 28% quarter over quarter and 25% year over year. The subdued issuance business also hurt transactional revenue in the wealth management, he said.
"It wasn't the quarter we wanted, and we move onto 2019," he said. "And we expect, as we said, a rebound in important areas."